Robust US Private Payrolls Lift Yields, Dollar; AUD, CAD Tumble

Hawkish Fed Outlook Gains Pace, Stocks Slide; US Yields Soar

Summary:

Two-year US treasury bond yields soared above 5%, trading to their highest level since 2007 before easing to 4.98% (4.94% yesterday). The 10-year US yield closed at 4.03% (3.85%).

Stronger than expected gains in US Private Payrolls, up at 497,000 against forecasts of 226,000 and a previous 267,000 boosted yields. US ISM Services PMI soared to 53.9 against forecasts at 51.3.

It was risk-off on growing expectations of a Federal Reserve rate increase of 25 basis points at their July 25/26 meeting. The Dollar rose against most of its Rivals bar the Swiss Franc and Japanese Yen.

Against the Canadian Loonie (USD/CAD), the Greenback soared to 1.3370 from 1.3225 yesterday. Lower oil prices also weighed on the Canadian Dollar.

Risk leader the Aussie Dollar (AUD/USD) tumbled 0.46% to 0.6625 (0.6695). New Zealand’s Kiwi (NZD/USD) fell to 0.6157 (0.6194). A fall in China’s June Caixin Services PMI weighed on the antipodeans.

The Euro (EUR/USD) though gained versus the Greenback, settling at 1.0890 against 1.0880 yesterday. The British Pound (GBP/USD) edged up 0.27% to 1.2740 from 1.2715.

The Japanese Yen and Swiss Franc came out winners against the US Dollar as risk appetite soured. The USD/JPY pair eased to 144.10 (144.45) while USD/CHF settled at 0.8953 (0.8970 yesterday).

Against the Asian and Emerging Market Currencies, the US Dollar finished mostly higher. USD/CNH (Dollar-Offshore Chinese Yuan) rose to 7.2580 from 7.2250. USD/THB rallied to 35.15 from 34.90.

Other economic data released yesterday saw China’s June Caixin Services PMI drop unexpectedly to 53.9 against expectations of 56.5 and a previous 57.1.

French Industrial Production in May rose 1.2%, surprising analysts who had forecast a fall to -0.2%. France’s June Services PMI matched forecasts at 48. Eurozone May PPI slid -1.9%, higher than median expectations of -1.8%.

The UK June S&P Final Services PMI matched forecasts at 53.7, down from May’s 55.2. US Core Factory Orders in May were unchanged at 0.3%. Claims for Unemployment Benefits in the US rose to 248,000, up from 236,000 previously and expectations of 247,000.

• AUD/USD – The combination of higher US bond yields and risk-off weighed on the Aussie Battler. At the close of trade in New York, the AUD/USD pair settled at 0.6625 from its opening at 0.6695. Overnight, the low traded was at 0.6599 while the high was 0.6688.
• USD/JPY – The US Dollar dipped against the haven sought Japanese Yen in late New York to 144.10 against yesterday’s 144.60. In volatile trade, the overnight high recorded was at 144.65 while the low traded was at 143.55. Souring risk sentiment weighed on USD/JPY.
• EUR/USD – The Euro rebounded against the US Dollar settling at 1.0890 against 1.0880 yesterday. In volatile trade of its own, the overnight low recorded was at 1.0833. The overnight high recorded was at 1.0901. Euro area economic data were mixed.
• GBP/USD – Sterling also finished stronger versus the Greenback, settling at 1.2740 against 1.2715 yesterday. Overnight, the British Currency traded to a high at 1.2781 before sliding lower in late New York. In volatile trade the overnight low recorded was at 1.2673.

On the Lookout:

As we come to the finish of a busy week, the economic data calendar picks up.

Japan kicks off with its Average Cash Earnings (y/y f/c 0.7% from 1.0% - ACY Finlogix).

Japan also releases its May Household Spending data (y/y f/c -2.4% from -4.4% - FX Street) and Leading Economic Index (f/c 97.5% from 96.8% - ACY Finlogix).

Switzerland starts off Europe with its Swiss June Unemployment Rate (f/c 1.8% from 1.9% - ACY Finlogix).

Germany follows with its May Industrial Production (m/m f/c 0% from 0.3% - ACY Finlogix).

The UK follows next with its UK Halifax House Price Index (m/m f/c -0.1% from 0%; y/y f/c -1.7% from -1.0% - ACY Finlogix).

France follows with its May Balance of Trade (f/c -EUR 9 billion from -EUR 9.71 billion – ACY Finlogix), Italy follows with its May Retail Sales (m/m f/c 0.1% from 0.2% - ACY Finlogix).

Canada kicks off North America with its Canadian June Employment Change (f/c +20k from -17.3k – ACY Finlogix), Canadian June Unemployment Rate (f/c 5.3% from 5.2% - ACY Finlogix) and Canadian Hourly Wages (f/c 4.3% from 5.1% - ACY Finlogix).

The US rounds up today’s economic data releases with its June Non-Farms Employment report (f/c 225k from 339k – ACY Finlogix), US June Unemployment Rate (f/c 3.6% from 3.7% - ACY Finlogix) and US June Average Hourly Earnings (f/c 4.2% from 4.3%). Whew.

Trading Perspective:

Welcome to Payrolls Friday. After a busy week of choppy trade, expect more of the same today.

The US June Payrolls report is today’s big event.

Until then, expect FX to trade within the overnight ranges established, albeit in continued choppy fashion.

Most analysts are expecting a drop in the US June Payrolls report (to 225k from 339k).

A June Payrolls increase of less than 225k, say to 200k to 210k will see the US Dollar plummet.

Keep an eye on revisions to past reports (ie April and May).

The Unemployment rate is also crucial to markets.

Expectations for tonight are at 3.6%, down from May’s 3.7%.

A Jobless Rate of 3.7% or higher would see more speculative Dollar longs bail.

Watch for rhetoric as well from various Federal Reserve and other central bank officials.

• AUD/USD – The Aussie Battler fell as risk appetite waned and US bond yields rose. For today look for immediate support at 0.6595 followed by 0.6565 and 0.6535. On the topside, look for immediate resistance at 0.6650, 0.6680 and 0.6710 to cap. A strong US Payrolls report will send the Aussie lower initial, but a return in risk appetite will be supportive. Expect a choppy trading day in the Aussie today, likely between 0.6580-0.6720. Trade the range today.

(Source: Finlogix.com)

• USD/JPY – Against the general trend, given the market’s risk-off stance, the Greenback slid against the Japanese Yen to 144.10 from 144.45 yesterday. Look for immediate support at 143.80, 143.50 and 143.20. Immediate resistance lies at 144.40, 144.70 and 145.00. Look for another roller coaster ride in this currency pair, likely between 143.70-144.70. A weak US payrolls report would send USD/JPY lower. Until then, trade the range.
• EUR/USD – The Euro held its own against the Greenback, edging higher to 1.0890 in late New York (1.0875). On the day, look for immediate resistance at 1.0910 and 1.0940 to cap any rallies. Immediate support lies at 1.0860, 1.0830 and 1.0800. A strong US Payrolls number (say +250k or higher) will weigh on the shared currency. A weak NFP of less than 224k, say 195-200k, will see the EUR/USD spike higher. Until then, look to trade a likely range of 1.0840-1.0940.
• GBP/USD – Sterling advanced modestly against the Greenback aided by the Euro’s strong performance. The GBP/USD pair settled at 1.2740. For today, look for immediate resistance at 1.2770, 1.2800 and 1.2830 to cap any rallies. Immediate support can be found at 1.2700, 1.2670 and 1.2640. Look for another choppy trading day in the British Pound, likely between 1.2670-1.2770. A strong US Payrolls report (+300 k) will see Sterling slump lower. A weak US NFP (200 k or less) could see Sterling spike through 1.2800. Keep those tin helmets on today, get ready for another roller coaster ride on Payrolls Friday.

Happy trading and Friday all. Have a top weekend ahead.

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